The Ground is shifting under our feet
It's an interesting time to be a veteran of Hudson Valley real estate and building, since the ground and terrain is shifting as I wake and write. I peruse the real estate listings that 'expire' each day, meaning a sale hasn't been completed by the time the contract ends with the realtor, and maybe more importantly, that the seller hasn't relisted or renewed the listing, typically marking some sort of pause and difficult soul searching from the seller as they contemplate the next move as interest and taxes accrue, and maybe worse, cash flow tied up so nothing more can be done on the next project, which means a loss of momentum, a scattering of relationships, and just a more difficult path forward for the next project. I know from experience how painful that can be and see quite a few new $1m+ houses languishing - because if the homes are finished, even if you get a deal going it's 3 or 4 months before the sale closes.
I like my vantage - we have a half dozen homes under contract which is great, but we also have a fully completed home for sale which is always something I want (as a sort of model home) until I actually have it, because even if you don't have a lot of debt borrowed against it, it still dings your confidence, even if that ding is unwarranted or premature. It's just the price of being careful - someone who doesn't feel it either is using someone else's money or is unrealistically too sure of themselves. Even though we have a pretty big ship at this point, I can still rev or brake the engine based on my observations and instincts and intuition. The data and interpretations of that data are flooding in daily. Average sales prices, days on markets, price decreases, etc... "Sold" updates don't tell you much right now since anything selling today was put into contract 3 or 4 months ago, a lifetime ago in this environment.
I think a lot of the realtors who have entered the game in the last few years might be a bit surprised at how gnarly the Catskill's real estate market can be - stingy, slow, temperamental and petulant. The days of slapping a price on it and fielding multiple offers is probably over for now, and those realtors who developed a reputation for the Midas Touch might be revealed to rather be well-timed surfers in a wave that floated a lot of boats. I get the feeling that those who will best weather what is brewing is those who took some winnings off the table rather than ramping up lifestyles to match temporary incomes. While I believe the long term trend of the Hudson Valley is strong as long as hybrid work remains a thing- which I am confident it will - doesn't mean the gravy days might entail a less nutrient and filling gravy.
My QB son broke his elbow which inserted us into the medical arena, where I don't go too often, being fortunate to be healthy and having the good fortune of having relations and family who haven't suffered from unexpected accidents or illness. My mind always wonders what people do who don't have the resources - be financial, time or referrals. I guess just go into debt, or get shitty care - turning bad luck happenstance into a permanent setback.
I had a lot of plans today, but woke up tired of being busy and cancelled them. I spend too much time in my car, so decided to spend the day at home watching Penn State duel Ohio State, type out this blog, read a good newspaper cover to cover and ponder our next moves as a business, where chaos and distress just might be our friends.
Real estate world is changing, New deals recorded.
I drink up a lot of newspapers and magazines and digital information, and lately it's a lot about housing- lots of perspective and lots of opinions. What is true is that the rise of interest rates will no doubt make a big dent in demand, and the higher you go up the price ladder, the bigger that demand drop might be.
Take a $450,000 loan, which would be a $550k purchase with a traditional 20% down and 80% borrowed. At 3%, that is $1900, or 8% that is $3300. And in the upstate real estate environment, those new $500k-$800k purchase benchmarks (that existed very infrequently pre-pandemic), if that price point market gets soft, then a lot of people are in for a lot of trouble.
There are all sorts of warning signals flashing - one I've notice recently are huge price drops in some homes that were priced wrong to begin with (some so wrong I can't help but think the sellers/developers/builder violated the golden rule of respecting your buyers' intelligence), and the big move towards 'open houses'. No one does open houses up here, and the idea that you have to staff and entertain an open house rather than spending your day fielding 8 offers must be a real drag to the realtors that thought this was an easy game, lulled into misperception by the ease of the pandemic fulled upstate sales seen. Welcome to the big leagues, where sailing is not always smooth.
Of course, another way to look at it, is an additional payment of $1400 a month is really not a lot of money for a lot of our buyers, and is not the final detail of a decision. Value is, and if you can articulate it and demonstrate it, then you still have a client base. If you've been swimming without shorts, and the only way you can make money was at pandemic level sales prices and volume, well, good luck to you.
One of the single biggest factors for us heading into this uncertainty is the certainty we have of free cash flow, low debt load, and at least 6 sales lined up for 2023 already. The trick for us will be not get in impatient and start buying other people's distressed assets too soon. I hate to be stingy and not be paying any interest payments to our good friends at Jeff Bank, but hey, business is business. At 7%, at our debt levels last year at this time, we literally would be paying $20k-$30k a month, which gets painful very quickly.
That's been the story of the last 2+ years. One thing after another. Lockdowns, lumber shortages, labor shortages, lumber price jumps, interest rate jumps, - you name it, we've seen it. Keeps life interesting for sure. Would hate to the guy with a lot of real estate debt right now -
Couple of houses we just put into contract -
Upper Big Sky in North Branch, at our Crest project. I believe nearly 10 acres of gigantic pasture and views.
Ranch 55 in Cochecton on 18 acres.
Ranch 56 in Narrowsburg on 10 acres. No pics yet.
To me, and what I know of the marketplace - these are homes and lands that are value-oriented, and unique. The idea we've never lost sight of the fundamentals - privacy, good taste, reasonable pricing, personalization - these are mantras and chants that have served us well. I literally don't think we had one client who regretted buying with us at the last downturn in 2008-2010. Life goes on.
Ranch 60 Sold
A new Ranch just Sold on Friday. Ranch 60
Neat 2000 sq ft Ranch, with views, woods, pasture, and a little stream. The land up at the Crest in North Branch is like the gift that keeps giving - it's a truly unique piece of land with some out of this world attributes in the view and land experience column. Of course, the 200 acres could really be screwed up with some poor house location planning, since while the openness creates lots of opportunities, it also creates real challenges and risks of one house impacting another negatively.
These 2000 sq ft ranches pack a lot of punch, and feel comfy and cozy and cabiny-like. The Buyers came from Erik Freeland of Countryhouse Realty. The buyers signed up around half way through construction which means they had a good idea of what the house would look and feel like when finished. Lots of our buyers join us when the house isn't started, which takes a fair leap of faith.
Excited about economic turmoil and volatility, hoping it bring some opportunities not yet defined or understood. I'm already starting to feel like the buyers of Catskills real estate are starting to flee to value and safety, and that always benefits us with our long track record of providing real value to our clients.
The corner turns on the market
While I'm not sure what it means for us as a company, it's clear the upstate market has changed/evolved over the last 90 days. I'm seeing "New Price", "Drastic reduction" and similar verbiage all over the MLS. For us, we aren't seeing it quite yet, with a house a month going into contract, and on the other end a house we have completed selling, and a dozen or so under construction, and at least 3 homes we are building for others on our "Our Homes, Your Land" initiative, we are busy enough in the present day not to worry too much about what the future holds. With little debt, and sales of homes under construction and under contract numbering near a dozen, we are in a good position to keep doing our thing day by day.
But the winds are changing -and with our efficient team and lots of dry financial powder, the real risk of the coming slowdown will be to pounce on an ill-advised 'opportunity'. I know in previous posts I said I'm not seeing any risk of a recession, and on the ground - (measuring it by evaluating labor supply, inflation, and the schedule of our vendors I talk to daily, I'm still not seeing it) - I'm still not seeing any evidence of it, but with the macro actions of the fed doubling interest rates, I'm sure that can't help but slow things down. Which as I might have said, is not necessarily a bad thing - too many people and businesses have been too busy for too long, running their rpms up in the red zone since summer of 2000. Been a great time to make money, with a lot of businesses charging 2x+ times what they would normally charge - so on a micro level you can see the baby steps of inflation - yes, all the costs of production are up, but businesses have been able to charge for that AND add a bunch more onto the bill since there is so much cash swimming around the economy for what ever reason.
I scan a bunch of newspapers and websites each day - and I mean a bunch - and I've noticed over the last year or so a new type of click bait has emerged, typically headlined with something like "10 Trends that are over" and then go on to mention every single thing people did and do like in their homes - shades of grey, salvaged or distressed wood, open shelves, subway tile, etc.. Next I'm sure they will start mentioning 'shade trees', 'peace and quiet' and other nonsense.
Our project at The Crest in North Branch NY continues to move along, with a completed spec home just crossing the finish line. A 2100 sq ft Ranch style with views, a stream and 5 acres.
Selling in the high $600's, this is a good test of the market, since it's a fair price compared to other homes, but still a pretty penny.
Just finished making our traditional winter travel plans, - NYC a week or two prior to Xmas, skiing in Killington over Prez Day weekend, and then a trip to Big Sky for some skiing which is typically 3 days but stretching it to 4 days this year. Still need to figure out the week after Christmas.
